28 January, 2020

The State of Digital Communications 2020

The State of Digital Communications 2020

Fresh digital opportunity is happening, and telecom innovation is driving it. As Europe works on a new, sustainable growth model for its society and economy, this Report provides you with the latest on one of the most important nablers of innovation and progress: digital communications. Here, in summary, our main findings.

5G is happening and fibre is making the European internet significantly faster.

Some of the world’s first 5G networks were launched in Europe in 2019. At the end of last year, 14 European telcos had launched 20 5G networks in 9 European countries, making Europe one of the most advanced regions in the world for 5G deployment. By the end of 2020 there will be over 80 networks in operation across the region, bringing next-generation wireless connectivity to millions of people. What is more, average speeds on mobile are high too, with ETNO companies registering higher average downlink speeds than the global average. This is happening against a challenging scenario on spectrum prices imposed by national Governments, whereby some European telecom operators are being charged up to 14x higher than global peers. Fibre roll-out is increasing across the region, with 41 million households directly reached by fibre in 2019, up from 34 in the previous year.

Telecom is Europe’s major technology business, with a €136.9bn/year value added and training on the rise.

Of the 17 Europe-based companies figured in the 2019 Forbes Digital 100 index, 11 are either telecoms operators or telecoms equipment vendors, and more than half of them are ETNO members. The estimate for the value added of ETNO’s footprint is €136.9 billion, which captures indirect contribution to society and economy in terms of tax, rewarding employment, shareholder value and others. What is more, spend on training is on the rise: our companies are delivering 33 hours per employee of skills training, up from 30 hours last year, and with some members delivering close to 80 hours per year.

European telecom markets need to become stronger. Investment is still too low, despite high capital intensity and investment leadership by ETNO companies.

The total investment in European telecom networks was €48.6bn in 2018, with ETNO companies deploying 70.5% of the total network investment in Europe (€34.4bn, fixed and mobile). ETNO companies have the highest proportion of revenues dedicated to investment among global peers in Japan, US and South-Korea. However, investment per capita in Europe remains lower than those of such global peers, with Europe investing around €89 per person, as opposed to global peers’ average at €177 per person. European markets remain fragmented, with 47 main MNOs in Europe, as opposed to 7 in the USA, and 3 in South-Korea and Japan respectively. Europeans use and spend less in connectivity services as compared to their global peers. Telecom service revenues is stuck at around €165bn for the past 5 years as are mobile and fixed Average Revenue Per User (ARPU) at €14.9 and €21.5 in 2019 respectively. This means European telecom markets must become stronger before they can deliver a significant leap in network investment. Against this challenging scenario, European telcos are also becoming more efficient in deploying investment, with many European countries having between 1 and 3 examples of network sharing agreements.

Networks are becoming greener, with both carbon intensity and overall emissions decreasing and aggressive climate targets.

Consumers demand data-driven services, which are in turn driving the digital revolution. However, data also means an increase in energy demand. In the telecoms sector, such demand grows at an estimated 5% per year. Despite this, European telecom companies are radically changing the way they work. By 2019, almost 50% of the energy used by ETNO companies came from renewable resources. This reflects positively on the green performance of the sector, which in 2019 reduced its overall emissions by 8.5% with respect to the previous year. Also carbon intensity is decreasing, with ETNO companies reducing emissions from 32 grams per EUR earned in 2018 to about 29 grams in 2019. What is more, the CO2 emission targets by leading ETNO companies are overall more ambitious than those indicated in the EU Green Deal.

The scope and opportunity for launching and providing more European digital services is significant. EU users appear to prioritise trust and to demand speedier, locally-tailored cloud services. 2019 telecom revenues from B2B are forecasted to be back in the positive area and the overall market for IT services, which includes cloud, is growing and competition is becoming more intensive. Similarly, IoT growth is going to continue, with telcos empowering a diverse range of industrial sectors and Europe expected to reach 740 million active IoT connections by 2026. On the consumer end, telecom operators are increasingly competing with OTT video services by launching their own OTT services: by 2024 revenues of the operators’ own OTT services are projected to reach €5.5bn/year, up from €1.8bn/year today. However, service and data-based innovation is also improving networks are their core, with AI being increasingly rolled out to make telecoms network more responsive to customer needs and more efficient, including from the energy consumption viewpoint. AI is also dramatically improving customer service.

As Europe strives to gain fresh leadership in global digital markets, telecoms innovation in 5G and data-driven services play a crucial role. Not only they are empowering consumers and users across economic sectors, but also they are addressing major socio-economic challenges that require a greener way of producing, more opportunities for economic growth and increased social inclusion.

Regulation and its implementation should support European investment and innovation.

The report also highlights how regulatory pressure still risks holding back European investment and innovation on many fronts. The speed of 5G rollout is significantly slowed by excessive spectrum prices and challenging license conditions. The opportunity of fully unleashing fibre deployment awaits a pro-investment implementation of the European Electronic Communications Code. Regulatory asymmetries, especially in the field of data, still hold back European innovation. Market fragmentation still affects Europe’s full potential in network investment. European institutions and national governments both have a major role to play in removing such barriers.

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About ETNO

ETNO is the European Telecommunications Network Operators’ Association. We proudly represent Europe’s main telecom operators, who innovate and invest in the continent's digital backbone. Our companies are the providers of Europe's most advanced digital networks and services. ETNO's mission is to develop a positive policy and regulatory environment empowering the delivery of world-class services for European citizens and businesses.